Alternative Investment

Wine as a Viable Alternative Asset Investment

Grapevine

My professional career has been spent in finance, dealing with structured transactions and financial investments. Fifteen years ago, I became a wine writer and educator, prompted by my love of all things wine. I never imagined that the two worlds would ever cross – that my vocation and my avocation could merge at the crossroads of evaluating investment alternatives and return on (liquid) assets.

In the midst of the current persistent global economic turmoil, investors have been seeking safe havens for their investments. After taking a pounding the past year, a number of investors are seeking alternatives that are countercyclical, or perhaps even noncyclical, to the current equity and bond markets structures.

The average investor has limited opportunities for alternative investments and long-term strategies. However, wealthy investors have been flocking to what has become recognized as a secure global investment vehicle.

As is this column, so too is this global marketplace wine-centric. I’m speaking of the “fine wine” market, the world of high-end wine purchases that are conducted in the rarified air of brokers, auction houses, fungible trading markets and even commoditized investment funds. It revolves around expensive and rare French Bordeaux and Burgundy offerings.

The market values of these wines (some of which are more than 50 years old) have consistently escalated in value through the peaks and troughs of conventional investment cycles. In a market reminiscent of the Dutch tulip craze of the 17th century, fine wine prices have, on average, experienced double-digit annual returns for the last 10 years, although a skeptic might view with disdain an investment fund focused on French Bordeaux wines at typical prices of $150 to $500 (and much higher).

While most wine consumers are purchasing wines on an as-needed/desired basis, wealthy wine buyers are speculating in wine for capital gains potential. Thus, a polarization has occurred in global wine consumption. The average person’s “liquid asset” has become the wealthy investor’s “long-term investment.”

As with other asset classes, the pedigree of the wine is key. Lesser wines may be purchased at lesser prices – and yield lesser returns, but still potentially mitigating the loss of principal inherent in other asset classes. 

On the macro level, the evidence is compelling. While the Nasdaq Composite Index declined over 30 percent in 2022, the Liv-ex 100 Fine Wine Index (yes, the quants can create any form of index imaginable) for the comparable period rose 7 percent. Even in the darkest days of the Great Recession, the Index suffered short-term damage of only 15 percent.  

Another macro factor is the ease of access to the product. In the old days (25 years ago), many wines exchanged hands directly between consumers or through specialized retailers. Today, international wine auction houses and internet purchases dominate the market. And, in the age of resurgent Wall Street inventiveness, there are several wine investment funds (think “red liquid” mutual funds).

At the micro level, the laws of supply and demand reign supreme. As an example, the price of a bottle of a 1990 French Burgundy, Domaine de la Romanée-Conti, sold for less than $100 upon release; it recently sold for $21,200.

Another unique aspect of this market: pre-issuance sales. Investors are beginning to purchase 2019 Bordeaux Fine Wine futures – for wines that won’t be released until the fall of 2023. Now that’s a speculative move.

There is a down side to being a high-end investor. Fine wines have become a commodity. Not an agricultural commodity meant to be consumed and savored, but rather an ethereal commodity, intended to provide satisfaction to one’s ego – trophies to be cellared or eventually sold and unlikely to ever be consumed. I’d say that’s a liquidity crisis.

Caution: This column should not be considered investment advice –far from it. I am not licensed to offer investment (or other) advice of any kind. And, oh yes, past performance does not guarantee future results. Ask my workout instructor.

Nick Antonaccio is a 45-year Pleasantville resident. For over 25 years, he has conducted wine tastings and lectures. Nick is a member and program director of the Wine Media Guild of wine journalists. He also offers personalized wine tastings and wine travel services. Nick’s credo: continuous experimenting results in instinctive behavior. You can reach him at nantonaccio@theexaminernews.com or on Twitter @sharingwine.

 

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